Margin is one of the most important investment strategies and valuable, the bag was made popular by legends such as Benjamin Graham (father of value investing) and Warren Buffet. safety margin is simply a value stock investing model in which the investor assigns a safety margin to the value of evaluation. />
Value investing, investors’ estimates (or allows) the intrinsic value of a diploma. The idea is that every action has an intrinsic value and price changes in the intrinsic value is only deviations from the actions of market forces. Calcium often return to their intrinsic value, where market forces are weak. Therefore, investors who buy shares when the price is trading below intrinsic value and investors who sell shares when the share price exceeds the intrinsic value will benefit.
But what makes the investment value is difficult to predict the intrinsic value of the material. There are no fixed rules to discover this. Investors should develop their own strategies and models for this purpose, depending on the availability of information and analytical tools you have. Many merchants use different indicators, such as book value, offering open the P / E, ratio of financial liability, institutional investment, investments in other companies, etc to find the intrinsic value of the title.
margin of safety investing strategy easily overcome this difficulty in estimating the intrinsic value. Investors assign a safety margin, as expected percent of intrinsic value (usually 30-40 percent of the intrinsic value). Safety margin investors only buy stocks when they are trading below the margin of safety. In this way, can reduce the risk / failure to predict the intrinsic value. As the safety margin percentage of the lowest possible risk, the greater the opportunity for profit. />
For example, it is expected that the intrinsic value of a license is $ 10 and the safety margin is 30%, then the trader buys the population only if the current trading price is lower U.S. 7 dollars ($ 10-30% $ 10). If the real intrinsic value is only $ 9, and stock returns at this level, the investor will get a $ 2. />
Edge, security principals in the investment is that the margin rather than a fixed price to reduce risk. Promotes all investors, experts and investors rookies, no calibration and no position or performance requirements of the market. But the disadvantages are / strong> that has all the rules for the allocation of a safety margin and does not consider market factors. There is also the possibility of substantial loss margin of safety is less when combined with the lack of opportunity in which a safety margin is high.